Restructuring Agreement

RESTRUCTURING AGREEMENT


This Restructuring Agreement is made as of the 21st day of November, 1997, by and among Signal Apparel Company, Inc., an Indiana corporation (the "Company") and WGI, LLC, a New York limited liability company ("WGI").


WHEREAS, as of the end of the Company's third fiscal quarter (September 30, 1997), the Company was indebted to WGI and/or its affiliates in the principal amount of $20,000,000 (plus accrued interest of $8,271,832), pursuant to the terms of a Credit Agreement dated as of March 31, 1995, as amended, (the "WGI Credit Agreement Debt"), with additional interest accruing on such indebtedness at the rate of 10% per annum; and


WHEREAS, as of the end of the Company's third fiscal quarter (September 30, 1997), the Company was indebted to WGI and/or its affiliates in the principal amount of $23,584,000 (plus accrued interest of $4,305,546), pursuant to additional advances of funds to the Company through August 22, 1997, which were intended by the Company and WGI as additional financing to be documented on substantially the same terms as those of the Credit Agreement dated as of March 31, 1995, as amended, (the "WGI Advances Debt"), with additional interest accruing on such indebtedness at the rate of 10% per annum; and


WHEREAS, WGI presently holds 177.969 shares of the Company's Series C Preferred Stock, which shares represent an aggregate of $20,513,958.31 in stated value plus cumulative accrued and unpaid dividends (dividends having ceased to accrue on such stock pursuant to the terms of an


1


agreement between the Company and all of the holders thereof dated March 31, 1995); and


WHEREAS, WGI presently holds Warrants, exercisable through September 1, 1998, to purchase a total of 345,000 additional shares of the Company's Common Stock with an exercise price of $7.06 per share; and


WHEREAS, as of the end of the Company's third fiscal quarter (September 30, 1997), the Company was indebted to WGI and/or its affiliates in the principal amount of $6,500,000 (plus accrued interest of $1,381,286), pursuant to the terms of certain indebtedness formerly owed by a subsidiary of the Company to an affiliate of NationsBank, which debt was subsequently purchased from the NationsBank affiliate by WGI (the "WGI/Greyrock Debt"), with additional interest accruing on such indebtedness at the rate of 11% per annum; and


WHEREAS, in contemplation of this Restructuring Agreement, WGI has (effective November 7, 1997) exercised outstanding Warrants which it held to acquire a total of 4,630,000 shares of the Company's Common Stock, with the aggregate $12,827,120 exercise price for such Warrants being paid through (i) tender to the Company of shares of the Company's Series C Preferred Stock held by WGI with a stated value of $3,375,000 and (ii) extinguishment of $9,452,120 of the outstanding balance owed by the Company pursuant to the WGI Advances Debt;


WHEREAS, in contemplation of this Restructuring Agreement, the Company has (effective November 10, 1997) applied $20,000,000 of additional funding which it obtained under the recent amendment and restatement of its factoring arrangement with its Senior Lender to pay off the


2


WGI/Greyrock Debt and to further reduce the outstanding balance owed by the Company pursuant to the WGI Advances Debt; and


WHEREAS, the Company and WGI desire to restructure the Company's obligations under the WGI Credit Agreement Debt and the WGI Advances Debt in the manner set forth in this Restructuring Agreement, in order to (i) facilitate and provide for additional equity investment in the Company and (ii) facilitate the Company's survival as a going concern while implementing management's turnaround plans for its business operations by improving the Company's working capital situation and reducing the financial pressure on its operations.


NOW THEREFORE, in consideration of the foregoing premises and of the mutual promises made hereinafter, the parties hereto agree as follows:


1. Board and Shareholder Approval Required


Consummation of the transactions which are the subject of this Restructuring Agreement shall be conditioned upon and subject to (i) approval ...